Interest rates can affect trust decisions

On Behalf of | Jul 6, 2018 | Trusts |

When people in Georgia make plans for their assets, trusts are an important tool that can help them plan for the future while providing ongoing income and benefits. The ongoing increase in interest rates, however, could cause people to make some changes in how they determine what kind of trusts to use. For the past 10 years, low interest rates have been a constant, and now that rates are rising, planning advice about trusts can also make a change.

Some trusts can provide strong value when interest rates are high; these have been used less frequently due to low rates. Meanwhile, people who have been undecided about whether to use a grantor retained annuity trust, known as a GRAT, or charitable lead annuity trust, referred to as a CLAT, may want to make a decision quickly. For a GRAT, a trust is created for a specific period of time; the grantor is paid a set value for each year the trust is in place, and the remainder passes to the grantor’s beneficiaries. Because taxation to the beneficiaries is related to the amount of interest assessed over the trust’s lifetime, a lower rate reduces the amount of tax a beneficiary may have to pay.

For a CLAT, the annual payment is issued to a charity, and it can help to maximize the value of tax deductions taken for charitable donations. After the trust term is over, the remainder is distributed to the grantor’s beneficiaries. The interest rate is locked in when the trust is created.

There are other trusts that can benefit from high interest rates, like qualified personal residence trusts. People thinking about how best to manage their estate in the current financial climate may want to work with an estate planning attorney to determine the best trusts and other ways to achieve their goals.

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